Responsible Lending Policies
Responsible lending is one of the most important Cigno Loans (CL) policy areas. Not only are there many obligations that CL is required to comply with under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and other relevant legislation, but also it is CL’s position that there is an important moral obligation that lenders have to the community. Further to this, it is the mission of CL to assist its customers without ever causing customers to end up in a worse financial position due to CL loans. To this end, the CL responsible lending policies not only comply with the minimum standards required under the relevant legislation but have also been written with the objective of setting the industry standard in responsible lending.
CL requires all staff and affiliates who have customer contact to comply with this policy, the CCCFA, Fair Trading Act 1986 and other relevant legislation. All staff and affiliates must have had sufficient training in order to be familiar with all relevant CL products and the features of these products as well as all promotions and representations.
Assessment of the borrowers’ requirements and objectives
It is essential that the requirements and objectives of a borrower be assessed prior to the approval of any loan products. CL products do not suit every borrowers needs. A borrower who takes a lending product that does not suit the needs of the borrower runs the risk of ending up in further financial difficulty.
Inquiries to be made
- The amount of credit required by the borrower
- The purpose for which the credit is sought
- Whether the credit is required on a one-off basis for a specific need at that time, or over a longer timeframe for expenditure on an ongoing basis.
- The term of the loan agreement that the borrower is seeking
- Whether the borrower requires particular product features or flexibility, the relative importance of different features to the borrower, and whether the borrower is prepared to accept any additional costs or risks associated with these features.
- Whether the borrower requires the loan amount to include any additional expenses, such as insurance premiums related to the credit or payment for extended warranties or repayment waivers, and whether the borrower is aware of the additional costs of these expenses being financed.
How the inquiries are to be made
As some CL customers are considered vulnerable borrowers under the CCCFA and some of CL products are considered high-cost credit agreements under the CCCFA, it is CL policy to asses all borrowers extensively regardless of whether they are considered vulnerable or the product that the borrower is applying for.
All borrowers are to be assessed based on information obtained from:
- The borrower directly
- For existing clients, information held on file after updating any out-dated information
- Reliable third parties such as workplaces, intermediaries acting on behalf of the borrower, and other lenders.
Assessment of substantial hardship for borrowers and guarantors
Prior to the approval of any lending product, the financial situation of borrowers and if applicable, guarantors, must first be assessed to insure that the lending product can be serviced without suffering substantial hardship. This means that CL staff must be satisfied that it is likely that the borrower will make the payments under the agreement without undue difficulty as well as be able to afford necessities and meet other financial commitments.
Inquires to be made
Inquiries must be made to assess the income, expenses and likelihood of repayment of all CL customers prior to approving any lending products for the customer.
Inquiries into the borrower and/or guarantor’s income must include:
- The borrower’s current income level
- The sources and stability of the borrower’s income
- Any likely changes to the borrower’s income
Inquiries into the borrower and/or guarantor’s expenses must include:
- The borrower and/or guarantor’s necessities including:
- Medical Expenses
- Children expenses (e.g. school fees)
- Other financial commitments including:
- Repayments on existing debts (including if the debt is to be repaid from the lending product being sought by the borrower)
- Other contracted payments (e.g. Pay TV subscription)
- Other expenses including:
Likelihood of Repayment:
Inquiries into the borrower and/or guarantor’s likelihood of repayment may include:
- The borrower and/or guarantor’s credit history
- Other information that is considered reliable to assess the likelihood of repayment including:
- The 66% rule
- Repayment amount must not exceed 66% of the customers nett income (income after expenses deducted)
How inquires are to be made
In making the inquiries, information may be obtained from:
- The borrower and/or guarantor
- Supporting documents provided by the borrower and/or guarantor
- For existing clients, information held on file after updating any out-dated information
- Reliable third parties including government departments, other lenders, credit reference agencies, and intermediaries acting on behalf of the borrower and/or guarantor.
- Based on statistical information as long as the information is reliable, current and reasonable in the circumstance.
Verification of inquiries
In general, CL trusts that the information provided by a borrower and/or guarantor is reliable as long as it is:
- Consistent with the information already held by CL about the borrower and/or guarantor
- Within the usual range of information for that type of borrower and/or guarantor
- Supported by documents from a reliable source
If for any reason, CL believes that the information is not reliable, then further verification is required. This generally will include requiring further documentation from the borrower and/or guarantor or other reliable third parties to help verify the information provided.
Assisting borrowers and/or guarantors to make an informed decision
CL ensures that borrowers and/or guarantors are able to make informed decisions regarding CL products by ensuring that:
- All advertising is not, or is not likely to be, misleading, deceptive or confusing to borrowers and/or guarantors
- All key features are communicated ensuring that:
- All terms and conditions of all CL products are expressed in plain language in a clear, concise, and intelligible manner
- All information provided to borrowers and/or guarantors is not presented in a manner that is, or is likely to be, misleading, deceptive, or confusing.
- Standard form credit agreements as well as information on the costs of borrowing are published
- Initial disclosure of the key information required by the CCCFA as well as all of the terms and conditions of the CL product are made prior the borrower and/or guarantor receiving a CL product.
CL is a responsible advertiser. All advertising materials are generated and approved in compliance with the CCCFA and other relevant legislations in accordance with the CL Advertising Policy. Please see the CL Advertising Policy for further policy on advertising.
Communicating Key Features
In order to assist borrowers and/or guarantors make informed decisions regarding the entering into an agreement with TL, it is essential that the borrower and/or guarantor is reasonably aware of the full implications of entering into that agreement. Therefore, prior to entering into any agreement with a borrower and/or guarantor, CL highlights the features of all its products. This is to be done in a way that draws the borrower and/or guarantor’s attention towards the implications of entering into an agreement to receive a CL product and must include the following:
- Key risks and characteristics of the specific product
- Secured property is at risk if in default (if applicable)
- Interest rate is variable or interest rate can be unilaterally changed (if applicable)
- Prepayment fee may be payable under a fixed-rate agreement if borrower and/or guarantor repays early (if applicable)
- The rate of any default interest and the amount of any default fee (if applicable)
- Warning that high-cost credit agreements should not be used for long-term borrowing or ongoing financial difficulties.
- The term of the agreement (if any)
- The amount of any establishment fees and any other mandatory fees the borrower and/or guarantor must pay when entering an agreement.
- Information on whether other interest or fees, including periodical or event-based fees, may be charged over the loan term
- Interest rates
- Expressed as annual rates
- The total amount of interest payable (if ascertainable)
- Repayment amounts
- Periodical amounts
- Total repayment amount (if ascertainable)
- Cancellation period provided for under the CCCFA and any other cancellation rights that may be offered (if applicable)
CL will always provide borrowers and/or guarantors with easy methods to contact CL for all inquiries, requests and questions. If the borrower and/or guarantor requests further information about any of the features of a CL product, CL will respond promptly in accordance with the CL policy, Contacting and communicating with borrowers and guarantors.
It is CL policy to not offer any refinancing options. Borrowers, if qualified and approved in accordance with the CL responsible lending policy, can take a second CL product in conjunction with the current product held by the borrower. Alternative, the borrower must first settle all previous debts owed to CL prior to taking further CL products.
Independent Legal Advice and Other Opportunities to Consider CL Products
It is CL policy to always recommend to and provide the time for borrowers and/or guarantors to seek independent legal advice regarding the use of all CL products.
Furthermore, if requested, CL and affiliates will always provide sufficient opportunity to the borrower and/or guarantor to fully consider any CL products including:
- Giving the borrower and/or guarantor the opportunity to take the information “offsite” in order to seek advice or consider options.
- Making it clear to the borrower and/or guarantor, how long the offer is valid for and ensuring those time durations are always honoured.
Third party influences over borrower and/or guarantor
Where possible, the borrower and/or guarantor should be advised of all information regarding CL products and legal advice whilst not in the presence of any third party or other borrower or guarantor who may have an undue influence over the decisions of the borrower and/or guarantor.
Means and Level of Communications of Key Features
When communicating the key features of any CL product, it is important that all information is conducted to the borrower and/or guarantor in a way that assists the borrower and/or guarantor to make an informed decision.
Key Features Document
All borrowers and/or guarantors are to be provided with a Key Features Document that outlines all of the Key Features outlined in Communicating Key Featuresabove.
Approval of Documentation and Agreements
Prior to implantation, a responsible manager or executive must first approve all documentation and agreements. As part of the approval process, the responsible manager or executive must ensure that all agreements and documentation are written in a way that is easy to understand and that no information provided to the borrower is misleading, deceptive or confusing.
As part of the approval process, the responsible manager or executive must complete the CL Documentation Approval Form (Attached), which encompasses the following requirements:
Structure and Language to be used in the Agreement and other relevant Documentation
All agreements and documentation should be:
- Concise – specific information rather than the overall length of the communication. A longer, well written document is preferable to a poorly written short document.
- Intelligible – the terms and conditions must be understandable to borrowers and/or guarantors in the target market
- Set out using a layout and font size that can be easily read
- The terms and conditions should be set out in a logical order that is easy for the borrower and/or guarantor to follow
- Highlight important information
- Explain complex information in plain language and include a clear explanation of any necessary jargon.
Information to be included in the Agreement and other relevant Documentation
All agreements and relevant documentation must comply with the following requirements:
- Important information is legible and/or audible
- Disclose all information in a level of detail that is equal to the importance of the information
- Technical language and statistics are only used where they are relevant and displayed in a way that is readily understood by a borrower and/or guarantor without specialist knowledge
- Where referring to fees or costs, an unrealistic impression of the overall levels of fees and costs is not given.
- Where referring to interest rate or an amount of interest:
- Both the interest rate and annual percentage interest rate are conveyed with equal importance
- It is advised as to whether the interest is:
- Fixed or,
- Variable or,
- It is advised as to whether fees will apply, and, if ascertainable, the amount of any establishment fees and other mandatory fees payable upon entry into an agreement for a CL product is advised.
- Where referring to amount of regular repayments for a particular term, the total costs of borrowing are indicated. This can be done by either:
- Advising the total amount payable under the agreement if ascertainable
- Advising how the total amount payable under the agreement will be calculated
- Where providing details of interest rates or fees that apply for an initial promotional period, the period for which the discount apples is stated and:
- What the interest rate or fees will change to after that initial promotional period (if ascertainable) or,
- How the subsequent interest rate will be calculated.
Where the Borrower and/or Guarantor Does Not Understand Key Features
In situations where the borrower and/or guarantor does not understand the key features of a CL product after receiving all explanations and the Key Features document, further steps must be taken to assist the borrower and/or Guarantor to understand. This can be done by:
- Recommending that the borrower and/or takes away a copy of the information provided and seeks legal advice or advice from organisations that provide information about consumer rights to obtain a better understanding of the implications of entering into an agreement with TL.
- (If borrower and/or guarantor is applying via online methods), recommend to the borrower and/or guarantor to discuss the CL products with CL via more direct methods (i.e. phone) prior to entering into an agreement.
If it is clear that the borrower and/or guarantor cannot understand the implications and key features of entering into an agreement for a CL product, CL staff and any affiliated businesses must not continue with the agreement.
Dealings with a borrower and/or guarantor after a CL agreement is approved
When dealing with a borrower and/or guarantor, at all times, CL staff and affiliates must exercise care, diligence and the skill of a responsible lender. CL staff and affiliates must assist the borrower and/or guarantor to reach informed decision in all subsequent dealings in relation to the relevant CL product.
All documentation and information provided must be approved by a responsible manager or executive using the CL Documentation Approval Form.
General Communications Subsequent to taking the CL Product
The following information must be made generally accessible to a borrower and/or guarantor throughout the life of the relevant CL product:
- What to do if the borrower and/or guarantor changes address
- Details of the CL internal complaints processes
- Details of the CL dispute resolution scheme
- Information about the availability of relief for unforeseen hardship.
- Application processes for seeking changes under grounds of hardship
- The potential consequences of default
Availability for Contact by a Borrower and/or Guarantor
Borrowers and/or Guarantors must be able to contact CL within reasonable contact hours. In particular, CL and any relevant affiliates must:
- Ensure that borrowers and/or guarantors can access:
- Current CL contact details
- Current CL contact hours
- Acknowledge and respond to queries from borrowers and/or guarantors within a reasonable timeframe.
When a Borrower and/or Guarantor must be contacted by CL
There are circumstances where CL and/or relevant affiliates must contact a borrower and/or guarantor. When these circumstances arise, the borrower and/or guarantor must be contacted in accordance with the Contacting and communicating with borrowers and guarantors policy. Circumstances where a borrower and/or guarantor must be contacted include:
- To notify the borrower and/or guarantor of any refund or credit balance resulting from over payment, or, if that credit has been used to repay another amount owed
- To notify a borrower and/or guarantor when they are close to making their final repayment or as soon as possible after the loan has been fully repaid.
- To provide information in relation to a borrower and/or guarantor’s rights and potential consequences if in default or if CL has been informed by the borrower and/or guarantor that it is likely that the CL product will fall into default.
- To remind a borrower and/or guarantor of any fees applicable if the borrower and/or guarantor is seeking to prepay a CL product.
Variations to a CL Product – Situations where agreement between CL and the borrower and/or guarantor is required (Agreed Variations)
At no time should a credit limit be increased without the borrower and/or guarantor’s consent.
Prior to executing any variations to a CL product, using care, diligence and skill, CL and any relevant affiliate must consider whether any variation to a product would materially affect the borrower or guarantor’s ability to make repayments without substantial hardship.
The following guidelines must be applied to variations agreed between CL (or a relevant affiliate) and a borrower and/or guarantor under which further credit is to be advanced or an increase in credit limit given.
Informed Decisions (Agreed Variations)
To ensure that the borrower and/or guarantor is making an informed decision with regards to all subsequent dealings, the following must be done:
- Inform the borrower and/or guarantor of the details of the proposed variation
- Unless the variation removes or relaxes one or more of the obligations that the borrower and/or guarantor would otherwise have, make it clear that the borrower and/or guarantor is not under an obligation to agree to the variation
- Clearly inform the borrower and/or guarantor of any changes to the key features of the CL product (see Means and Level of Communications of Key Features)
- (if applicable) inform the borrower if they may have more to repay over the term of the agreement, including interest
- Respond promptly to any borrowers requests for further information
Along with the above points, CL and relevant affiliates must also comply with the relevant sections of all other CL policies specifically Assisting borrowers and/or guarantors to make an informed decision
Any variation should be expressed in plain language. See Structure and Language to be used in the Agreement and other relevant Documentation for further guidance.
Default and Other Problems
Borrowers and/or guarantors must always be treated in a reasonable and ethical manner. This includes when there is a breach of an agreement, an impending breach of an agreement, when other problems arise, or when a borrower and/or guarantor suffers unforeseen hardship.
Specific practices that must not occur
It is CL policy to never partake in any of the following practices with regards to default and other problems experienced by a borrower and/or guarantor:
- Hold multiple direct debit forms for the purpose of re-lodgement after cancellation of a direct debit authority
- Tell or imply to the borrower that a Direct Debit cannot be cancelled
- Continue to receive Direct Debit payments after the loan has been fully paid
- Let a borrower exceed their credit limit and charge a fee when this occurs without having given the borrower information that the limit may be able to be exceeded
- Take a new guarantee or vary an existing guarantee after a borrower has defaulted without informing the guarantor that the guarantee or variation is necessary due to the default.
- Hold a borrower and/or guarantor’s passport, credit or debit card, driver’s licence or other critical personal document.
- If the credit or debit card is issued by TL, this does not prevent the card being repossessed in accordance with the terms and conditions of that card.
- CL must only ever contact a borrower when reasonably necessary. Never to the extent of harassment or embarrassment for the borrower and/or guarantor.
Informing the Borrower and/or Guarantor
CL must at all times have a procedure for contacting borrowers and/or guarantors regarding missed repayments as well as procedures for how to manage loans for borrowers and/or guarantors who are having (or likely to have) difficulties meeting repayments.
Processes and information that must be included in the procedure
The information and processes vary depending on various factors including amount, nature, and time of the default. However, standard information and processes that should be provided should include:
- Notifying of the missed payment(s)
- See Contacting and communicating with borrowers and guarantorsfor CL policies regarding contacting borrowers and/or guarantors.
- Informing of the risk of escalation of the debt as a result of missed payments and any additional interest or charges
- Finding out the reason for the missed payment(s)
- Reminding the borrower and/or guarantor of the borrower and/or guarantors rights
- Assess changes to the agreement on the grounds of unforeseen hardship
- Remind the borrower and or guarantor of the ability to obtain legal advice, organisations that provide information about consumer rights, or advice from free and independent budgeting services.
- Give the borrower and/or opportunity to advise employers or the situation prior to lodging any assignment of wages orders to an employer.
- Encourage early, open and honest communication when a borrower is experiencing financial difficulties.
- If repayments are lower than the accruing interest and fees, the borrower must be informed that they are getting further into debt
- Situations such as this may be considered for unforeseen hardship relief (See the CL Financial Hardship Policy).
Consideration of a Proposed Repayment Plan – Unforeseen Hardship
When a borrower and/or guarantor is planning to apply for is receiving relief due to unforeseen hardship, proposed repayment plans must be considered as per theCL Financial Hardship Policy.
Consideration of a Proposed Repayment Plan – Other Repayment Difficulties
When a borrower and/or guarantor is facing repayment difficulties but not suffering from unforeseen hardship CL must attempt to work with the borrower limit the rate at which effects of a default escalate. This should include:
- Taking into account the borrower and/or guarantor’s:
- Preferred means of repayment.
- The likely duration of the borrower and/guarantor’s financial difficulties and what steps are being taken to address them
- The credit history of the borrower and/or guarantor and other matters relevant under an assessment of the borrowers ability to make repayments without substantial hardship
- Whether a repayment plan will allow the borrower and/or guarantor to meed their obligations during the period of financial difficulties without unnecessarily prolonging the period of difficulty.
- Where possible, consider agreeing to an arrangement that enables the borrower and/or guarantor to work through repayment difficulties by:
- Agreeing to a repayment plan
- Accepting reduced payments for a reasonable period of time
- Suspending, reducing, waiving or cancelling further default interest of fees
Exercising Enforcement Rights
CL will never exercise enforcement rights without first attempting to work with the borrower and/or guarantor to meet their obligations. However, if it is necessary, enforcement rights must be exercised taking into account the following:
- Enforcement response must be based on what is considered by CL to be the most effective way of obtaining repayments
- Enforcement response may take into account whether a particular response is necessary to prevent the borrower obtaining more credit elsewhere
- Enforcement action must not be for the purpose of punishing the borrower and/or guarantor for the borrower’s default.
Debt Collection Agencies
CL requires all Agencies to:
- Comply with all relevant legal obligations including the CCCFA
- Ensure staff understand and agree to comply with all relevant legal obligations including the CCCFA
- Have processes to ensure that its staff understand and agree to comply with their legal obligations and act in accordance with the terms of the agreement between CL and the borrower and/or guarantor.
All complaints must be handled as per the CL Complaints Policy.
CL must ensure that all products it offers are not oppressive and no borrower and/or guarantor can be induced into an agreement via oppressive mean. Furthermore, all rights and/or powers conferred under an agreement must not be exercised in an oppressive way.
CL must not induce the borrower and/or guarantor to enter into an agreement
To comply with these obligations with regards to oppression, CL must:
- Ensure that all compliance with all other CL policies is observed
- Ensure that borrowers and/or guarantors have adequate time to consider the information and explanations of the agreement without being pressured
- Not use threats to take enforcement action in response to a borrower and or guarantor’s default under an agreement in order to coerce the borrower and/or guarantor into another agreement
- All staff and affiliates who interact with the borrower and/or guarantor must consider whether there are any matters which lead them to reasonably believe that the borrower and/or guarantor may not be reasonably able to protect their own interests
- Take particular care when dealing with borrowers that appear not to be reasonably able to protect their own interests, including considering recommending independent legal advice or other specialist expertise.
The Terms and Conditions of a CL agreement must not be oppressive
To comply with these obligations with regards to oppression, CL must:
- When drafting terms and conditions of agreements, consider:
- How the terms and conditions compare to reasonable standards of commercial practice. – NOTE: If a term or condition is common, it does not necessarily mean that the term or condition is reasonable
- Whether the terms and conditions are reasonably necessary to protect the interests of CL and allow the borrower to be reasonably able to comply with their obligations
- Staff and affiliates who interact with the borrower and/or guarantor:
- Must consider whether there are any matters, which lead them to reasonably believe that the borrower and/or guarantor may not be reasonably able to protect their own interests.
- Take particular care when dealing with borrowers and/or guarantors that appear to be reasonably unable to protect their own interests including considering recommending independent legal advice or other specialist expertise.
CL must not exercise an oppressive power
To ensure that no power exercised by CL is oppressive, all other CL policies must be complied with at all times. CL must ensure that it always treats borrowers and/or guarantors reasonably and in an ethical manner.
Responsible Lending Policies Responsible lending is one of the most important Cigno Loans (CL) policy areas. Not only are there many obligations that CL is required to comply with under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and other relevant legislation, but also it is CL’s position that there is an important
Cigno Loans products are only suitable for short-term needs. They are not suitable for long-term or regular borrowing.